Thursday, October 21, 2010

Interesting to say the least

Last weeks unemployment claims were down and this caused Treasury Bond prices to drop and their interest rate to climb as if we were suddenly on the way to a booming economy. Unemployment is still at levels that would have been scandalous at anytime since the Great Depression but we live in a different century.

The wild swings in bond prices are not about the chances that you will have a job tomorrow but whether or not the Federal Reserve will print a lot of new money. Goldman Sachs has issued its opinion on the matter and they often get their way in the world. They would like to see the Fed print a 100 billion a month for six months or so. It’s being reported that others with influence on the Fed board want to see a trillion dollars produced all at once in a sort of “shock and awe” approach to quantitative easing (this is the buying up of various debt instruments, in this case Treasury bonds).

The Fed did this two years ago when they purchased 1.7 trillion in bonds and commercial debt. This doesn’t include the Fed making trillions in loans to the big banks at zero interest. All of this funny money was to re-inflate the money supply that was in danger of vanishing after the realization that all of Wall Street’s fancy new unregulated investment instruments were rotten to the core. The wealthy class nearly became the new poor, well not really since the Fed can just print more money and bail them out.

This new round of money creation has caught the attention of China who holds more cash than anybody. If you put it all their foreign currency one place in actual cash it would look like Scrooge McDuck’s money bin. So their reaction is now to “encourage” their people to go out into the world and expand their holdings. In terms of capitalization and profit’s the three biggest banks in the world are Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China.

The last time they tried this was in 2007 when they attempted large scale mergers and acquisitions and they lost money hand over fist with the plunge in asset prices in 2008. This time they are banking on inflation instead of deflation. I’m not sure they grasp how much bad debt that still exists on the books of American companies or maybe they don’t care. They might simply view dollars as purely expendable.

All of the trillions of junk bonds, trillions of bad commercial paper and trillions in bad mortgages still need to be dealt with before the USD is anything but a bad joke. The Chinese curse about wishing your enemy “to live in interesting times” comes to mind. How this all works out will be interesting to say the least.


Anonymous said...

The Chinese are simply spending their USD's before they are worthless. They know full well the extent of our debt and the meaning of "quantitive easing."

Fortunately for them, their currency is based on manufacturing not fantasy financial "assets."

AND they have NOT waged war all over the world for the last century+ as has the US.

We've made many enemies who know they can't match us militarily. I would be surprised if they are not cheering for, if not actually conspiring to effect, our economic humiliation.

Our Wall Street Wizards have conjured up the rope the others will use to hang us. (apologies to M. Malloy and others.)

Anonymous said...

Forgot to sign the post above:

"The Chinese are simply spending their USD's before..."

John Puma

SanMigMike said...

China has not wasted lives and money on military adventures? You might think back a few years to the Mao times, China has had a few military adventures (Korea being one big one) and their military is growing in power. Also their military has a different role in their society, even a role in business. Their weapons are found in all sorts of places, from true blue American better dead than red anti-Commie Tea Bagger gun nuts gun safes to the air forces of such friends as Pakistan not to mention our enemies. China knows they need a powerful military to back up their economic power so they can be the sole superpower of this century.

China, the government and the business world looks at things differently, while an American business has to look good 24/7/365 for the Gods of Wall Street a Chinese company and the Chinese government looks at a longer term. If an American company, while waving the flag (I don't know why Wal Mart waves the American flag, they should wave the Chinese flag) would sell America and all their American workers for a buck profit...or less. A lot of other countries demand a bit more of their companies than simply a profit...they look a bit askance at a company committing treason but our upper 2% are no longer really Americans, they are such internationalists that feel that making money is the only thing and that they have enough money to keep themselves and their families safe for years and years. But we see that even with the other Americans, they curse socialism and communism without really know much about each one while they cheerfully shop and buy products made in China and Vietnam...go figure. The Reds are not just bad but EVIL however choosing to buy products made by Reds is just fine if you save a few pennies?

I find it difficult to understand why America and Americans don't think we are at war with China and while the Chinese are playing to win while we (our oh so clever 2% at the top pulling the levers) think "business" and "profit" and our smart "All American" (when it suits them to wave the flag)leaders sell them the rope they will hang us with. What old Red said that the first time? Lenin, Stalin? But the sons and daughters of Mao will be the ones to make it happen.